Syllabus Course Description – in This Course We Will Investigate Why Nations Trade, What They Trade, and Who Gains from Trade

International Economics PROFESSOR

Academic year 2018-2019 Koopman Robert [email protected]

The Economics of International Trade Office hours

EI057 - Autumn - 6 ECTS

Course Description

This course surveys the economics of international trade (both theory and empirics) for students who have a solid background in economics but do not specialize in international trade. The course is compulsory for students who do not follow the trade track and cannot be taken by students who also take Trade A and Trade B.

Syllabus Course Description – In this course we will investigate why nations trade, what they trade, and who gains from trade. We will review the history of international exchange and study its effects on economic growth and development. We will cover a number of timely and topical subjects, and after reviewing the historical evolution of trade theories, use these frameworks to try and organize our thinking about such topics as trade and inequality, trade and employment, how large firms affect trading patterns, and how trade has contributed to globalization. At the end of the course you will have a full understanding of how to think about many of the forces affecting modern economies and economic growth.

Main Textbook - International Economics: Theory and Policy (10th Edition) (Pearson Series in Economics) 10th Edition by Paul R. Krugman(Author), Maurice Obstfeld(Author), Marc Melitz(Author), referred to hereafter as KOM. This book can be found here http://www.amazon.co.uk/International- Economics-Paul-Krugman/dp/0273754092. You may also find earlier versions cheaper that will cover largely the same content, but some important elements might be missing. While I will adhere to the text for most of the conceptual material I will usually supplement the lectures with other material from the real world and build on in class discussions. Class attendance is highly recommended.

Podcasts – I highly recommend Trade Talks https://piie.com/trade-talks, a free and advertisement- free weekly podcast from Soumaya Keynes (The Economist) and Chad P. Bown (PIIE) on trade and trade policy.

Episodes are typically 20-30 minutes and a mix of economic analysis of trade events as well as conversations with political-economic experts and legal scholars about trade issues, including and especially insights from research. Examples include Douglas Irwin, Jennifer Hillman, Nuno Limão, Nina Pavcnik, Wolfgang Keller, Swati Dhingra, Dave Donaldson, Claudia Steinwender, Dani Rodrik,

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Meredith Crowley, Tom Prusa, Caroline Freund, Petros Mavroidis, Mary Lovely, Joe Glauber, Emily Blanchard, and Jason Furman.

And Chad Bown has developed a landing page with the timeline of events and data available on all of the products being hit with new tariffs, etc https://piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide

Blogs/Tweeters – Some possible feeds to follow…Trade Talks @Trade__Talks, Doug Irwin @D_A_Irwin, Jennifer Hillman @JAHillmanGULaw, VoxEU @voxeu, Dani Rodrik @rodrikdani, Caroline Freund @CarolineFreund, Richard Baldwin @BaldwinRE, Paul Krugman @paulkrugman, and Christine Lagarde @Lagarde.

Additional Readings – Numerous shorter readings are assigned in the relevant sections below that aim to reinforce the main text material. Most are straightforward and easy reads. Some useful, though completely discretionary readings, include – The Undercover Economist – by Tim Harford Free Trade Under Fire – by Doug Irwin The Mystery of Economic Growth – by Elhanan Helpman Rising Tide, Is Growth in Emerging Economies Good for the United States – Lawrence Edwards and Edward Z. Lawrence

Useful Trade Related Websites – not all inclusive! The WTO Website – www.wto.org, including data at https://www.wto.org/english/res_e/statis_e/statis_e.htm and research at https://www.wto.org/english/res_e/reser_e/reser_e.htm The OECD Website – www.oecd.org/trade The World Bank Website – www.worldbank.org – search on trade DG Trade – European Commission – http://ec.europa.eu/trade/ USTR – www.ustr.gov The International Trade Center - http://www.intracen.org/ The US International Trade Commission – www.usitc.gov

Pre-requisites for the Course and Grading – Students are expected to have a solid understanding of micro principals, particularly producer and consumer theory, including production possibility frontiers, production functions, first order conditions for profit maximization and cost minimization, supply curves, as well as utility functions, first order conditions for utility maximization and demand curves. While we review these basic concepts having a recent course will allow us to focus on the trade aspects. Also developing a good understanding of the notion of a "counterfactual" see these links http://theincidentaleconomist.com/wordpress/counterfactuals/; http://www.deirdremccloskey.com/docs/pdf/Article_97.pdf.

Grading will be based on a mid-term (30%), final (40%), and a small group projects (30%) involving a short paper and presentations to the class. Discretionary problem sets and (eventually) answer sheets will be provided, but not graded. These will be reviewed if the course has a TA assigned. If no TA the problem sets may not be reviewed in depth, but I will try to answer your questions during office hours (do not wait until just before an exam!) Completing the problem sets is highly recommended as problems on the mid term and final will cover very similar material. In my experience students not successfully completing and understanding the problem sets generally struggle on important parts of the exams. Questions on the exams are largely drawn from the required text, require a general understanding of the assigned additional readings, and class discussions.

- Page 2 - Small group projects (2-3 people) – in the group projects you are expected to write a short paper based on one or more of the non-textbook readings assigned (or other approved readings.) These papers will be between 5-7 pages, and you are expected to draw upon the theory and concepts discussed in class and in the textbook and apply them to the readings and illustrate how they support or fail to support the thesis in the article(s), how you might improve the article(s), or present an alternative thesis as explanation (again, drawing on the material from the course.) You are expected to provide an effective 15 minute presentation in class followed by another 10 minutes of discussion on your work with your classmates. All members of the group will be assigned the same grade. Depending on the number of students in the class you can expect to do at least 2 of these assignments during the semester.

Course Outline (subject to change)

This semester I am starting the course with applied policy assessments rather than the traditional introduction to theory given the current trade debate that is focused on applying tariffs and other policy instruments.

Lectures – Starting in week 2 group presentations will take the last 25 minutes of class.

Week 1 – Introduction and World Trade: An Overview KOM, Chapters 1 and 2

Paul Krugman, "What do Undergraduates Need to Know About Trade?" Link - http://www.jstor.org/stable/pdf/2117633.pdf?acceptTC=true

Frederic Bastiat – "Petition of the Candle Makers." Link - http://bastiat.org/en/petition.html

Weeks 2 and 3 – The Instruments of Trade Policy KOM Chapter 9

Feenstra, “How Costly is Protectionism?” Link - http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.6.3.159

Messerlin, “The Costs of Protection in the European Community.“ Chapter 3 only. Link - http://www.piie.com/publications/chapters_preview/102/3iie2733.pdf

USITC, “Economic Effects of Significant Import Restraints – 6th Update” Executive Summary only. Link - http://www.usitc.gov/publications/332/pub4094.pdf

Huffbauer and Lowry, “U.S. Tire Tariffs: Saving Few Jobs at High Cost.” Link - http://www.iie.com/publications/pb/pb12-9.pdf

Economist, "The Problematic Proposal" - http://www.economist.com/news/finance-and- economics/21704789-shifts-global-trade-patterns-are-fuelling-new-anti-trade-fervour

Week 4 – Political Economy of Trade Policy and Trade Wars KOM Chapters 10

Trade “War” (?) assessments:

Peterson Institute - US-China Economic Relations: From Conflict to Solutions—Part I https://piie.com/publications/piie-briefings/us-china-economic-relations-conflict-solutions-part-i

- Page 3 - Center for China and Globalization - CCG Report | Understanding the US-China Trade War: Analyses and CCG Recommendations http://en.ccg.org.cn/ccg-report-understanding-the-us-china-trade-war- analyses-and-ccg-recommendations/

Crowly, “An Introduction to the WTO and GATT.” Link - https://www.chicagofed.org/publications/economic-perspectives/2003/4qeppart4

Irwin, “Avoiding 1930’s-Style Protectionism, Lessons for Today.” Link - http://siteresources.worldbank.org/INTRANETTRADE/Resources/239054-1239120299171/5998577- 1244842549684/6205205-1247069686974/Irwin.pdf

Messerlin, “Political Stresses, Legal Constraints, and Old-Fashioned Economic Views.”Chapter 1 only. Link - http://www.piie.com/publications/chapters_preview/102/1iie2733.pdf

Week 5 – Labour Productivity and Comparative Advantage: The Ricardian Model KOM Chapter 3

Paul Krugman, "Ricardo's Difficult Idea." Link - http://web.mit.edu/krugman/www/ricardo.htm Paul Samuelson, "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization" - https://www.aeaweb.org/articles?id=10.1257/0895330042162403 Michael Spence, "Tradeable Prosperity" - https://www.project-syndicate.org/commentary/tradable- prosperity

Week 6 - Specific Factors and Income Distribution KOM Chapter 4

Paul Krugman, "Does Third World Growth Hurt First World Prosperity?" Link - https://hbr.org/1994/07/does-third-world-growth-hurt-first-world-prosperity and think about Samuelson above…. Martin Wolf, "We Must Act to Share the Gains with Globalization's Losers." Link - http://www.ft.com/i/cms/s/0/605b0a30-3d45-11db-9b3d-0000779e2340.html#axzz3inmqqrgq Paul Krugman and Robert Z. Lawrence, "Trade, Jobs, and Wages." Link - http://www.scientificamerican.com/article/krugman-trade-jobs-wages/?print=true

Week 7 - Midterm

Week 8 – Resources and Trade: The Heckscher-Ohlin Model KOM Chapter 5

Nicholas Kristof, "In Praise of the Maligned Sweatshop." Link - http://www.nytimes.com/2006/06/06/opinion/06kristof.html?_r=0&pagewanted=print Tim Harford, "Why the Anti-Sweatshop Campaigns Might Just Do It Afterall." Link - http://www.ft.com/intl/cms/s/2/da35c4f2-571e-11df-aaff-00144feab49a.html Economist, "An Inconvenient Iota of Truth" - http://www.economist.com/news/economics- brief/21703350-third-our-series-looks-stolper-samuelson-theorem-inconvenient-iota

Weeks 9 and 10 – The Standard Trade Model KOM Chapter 6

Lawrence and Litan, “Globophobia: The Wrong Debate over Trade Policy.” Link - http://www.brookings.edu/research/papers/1997/09/globaleconomics-lawrence Deardorf, “Benefits and Costs of Following Comparative Advantage.” Link - http://fordschool.umich.edu/rsie/workingpapers/Papers401-425/r423.PDF Hausmann, "The Import of Exports" - The Import of Exports by Ricardo Hausmann - Project Syndicate

- Page 4 - Dadush, "Trade, Development, and Inequality" - http://carnegieendowment.org/2015/10/28/trade- development-and-inequality-pub-61797

Week 11 – External Economies of Scale and the International Location of Production KOM Chapter 7

Jensen and Kletzer, “Tradable Services: Understanding the Scope and Impact of Services Outsourcing.” Link – http://www.iie.com/publications/wp/wp05-9.pdf Economist, “The Longest Journey: A Survey of Migration.” Link – http://www.economist.com/node/1402810

Week 12 – Firms and the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

Economist, “The Great Unbundling.” Link - http://www.economist.com/node/8559758 Baldwin, “Globalisation: The Great Unbundling(s). Globalisation Challenges for Europe.” Link - http://www2.dse.unibo.it/naghavi/baldwin.pdf Economist, "Trade in the Balance" - http://www.economist.com/news/finance-and- economics/21690073-globalisation-can-make-everyone-better-does-not-mean-it-will-trade

Week 13 Trade Policy in Developing Countries KOM Chapter 11

Lin and Chang, “Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy it? A Debate Between Justin Lin and Ha-Joon Chang.” Link - http://siteresources.worldbank.org/INTRANETTRADE/Resources/Internal-Training/287823- 1256848879189/LinChangeDPRDebateIndustrialPolicy.pdf

Irwin review of Chang’s “Kicking Away the Ladder of Development” Link - http://eh.net/book_reviews/kicking-away-the-ladder-development-strategy-in-historical-perspective/

Week 14 – Final Exam

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